Prior to the 2008 worldwide economic collapse, instigated by problems with the US sub-prime mortgage market, the Irish property market was booming. New houses were being built in unprecedented numbers, demand for office space was very strong and the so-called Celtic Tiger was roaring. However, by 2009 the dream was over, the years of the Celtic Tiger were forgotten and we saw house prices fall by 50% in some areas. The boom was over, reality had arrived and the Irish government was forced to introduce a National Asset Management Agency to effectively bailout the financial sector.
The Celtic Tiger is back
Over the last 12 months we have seen a significant increase in demand for Irish housing and office space. The banking sector is more confident today than it has been for many years and there are signs of a strong recovery. A report by the Organisation for Economic Co-operation and Development (OECD) also casts further light on the recovery suggesting property prices are rising rapidly amid a shortage of housing supply.
Unemployment
The current unemployment rate in Ireland now stands at under 7% which is a significant fall from the 15% level in 2012. Obviously, the more money available to the Irish population the more demand for housing, both from a purchase point of view and rental. Interestingly, Ireland could be one of the few countries to benefit from Brexit as there are already signs of many companies switching their European offices from the UK.
New build numbers
When you bear in mind that there were over 88,000 new homes built in Ireland back in 2006, compared to just 14,922 last year, this perfectly illustrates the lack of new build stock. As a consequence, property prices are currently rising at around 12% per annum with much of this to do with a lack of stock as opposed to significant demand. However, this could all be about to change!
Increases in development
Perhaps the one fly in the ointment is the rebound in the Irish property market which has seen a significant increase in newbuilds. Plans to start building, commonly known as commencements in Ireland, increased from 2949 in the first five months of 2016 up to 7533 in the first five months of 2017. This is a significant rebound but compared to the 88,000 properties built in 2006 perhaps it is an overreaction to cite this as a major concern about overheating?
Negative equity
The number of Irish homeowners still in negative equity has fallen to 6% per borrower which again is a great improvement from the 17% figure of 2013. We have seen significant tightening of financial regulations, gone are the days of 100% mortgages but it is worth noting that there are still many “non-performing mortgages”. In essence, any continued recovery in the Irish housing market could prompt those in negative equity and still owing significant monies on their mortgages to cash in.
Population growth
The Irish population is currently growing at around 1.7% per annum and, in light of Brexit, there is every chance this could remain strong for some time to come. While many major financial companies have threatened a move to Ireland from the UK, but have yet to follow through, these should not be seen as empty threats. If the UK is effectively cut out of the European financial markets this would be a bitter blow although not a devastating one. To balance this argument, it is worth noting that the UK has been one of the leading financial lights in the world for many years, even pre-EU.
The future
While concerns regarding a very strong Irish property market, underperforming mortgages and increase in newbuilds are valid, there is a unique situation surrounding the ongoing recovery in the Irish economy and property market. Nobody quite knows how Brexit will pan out but at this moment in time Ireland could be the major beneficiary to the detriment of the UK.